The Florida LegislatureOffice of Economic and

Demographic Research850.487.1402http://edr.state.fl.us

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Florida:An Economic Overview

February 5, 2013

Key Economic Variables Improving

Inventory of UnsoldHomes & Commercial Space

Population Growth

Employment Growth

NewConstruction

FL EconomyGross Domestic

Product & Personal Income Growth

Credit Market(+ or -)

Global & National Economic Conditions Financial Assets

Need for Services & Goods

Tourism

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Economy Remained Positive in 2011

In 2011, Florida’s economic growth remained in positive territory for the second year after declining two years in a row. State Gross Domestic Product (GDP) ranked us 37th in the nation in real growth with a gain of 0.5%. While the state’s ranking improved, the growth slowed from a downwardly revised 0.9% for 2010.

FL Personal Income Grows in Q3:2012

Growth (although still positive) slowed in Florida during the third quarter of the 2012 calendar year—moving below the prior quarter which was significantly revised downward. Florida was ranked 35th

in the nation with quarterly personal income growth of 0.4 percent, putting the state slightly below the national growth rate of 0.5 percent. Manufacturing and Construction continued to be among the state’s weakest industry areas for earnings. In contrast, the Arts, Entertainment, and Recreationand Retail Trade industry areas performed strongly.

Current Employment Conditions

December Nonfarm Jobs (YOY)US 1.4%FL 0.7%YR: 54,900 jobsPeak: -686,700 jobs

December Unemployment RateUS 7.8%FL 8.0%(749,000 people)

Fifteen states had a higher unemployment rate than Florida.

Highest Monthly RateJanuary & February 201011.4%

Labor Force Changes Account for Most of Rate Drop

December 2012:Labor Force: 9,347,425Participation Rate: 60.2

25-Year Average: 62.4

National situation as reflected in the IHS Global Insight Executive Summary for November 2012: “Lower labor-force participation, not rapid jobs growth, has been the primary driver of the drop in the unemployment from its 10.0% peak. As jobs return, ...the labor force is likely to grow faster, slowing down the decline in unemployment.” The Federal Reserve Board has made similar statements.

Unemployment Rates 3 of Florida’s 67

counties haddouble-digit

unemployment rates;at the highest, this

number was 52

Florida’s Job Market

The job market will take a long time to recover – about 686,700 jobs have been lost since the most recent peak. Rehiring, while necessary, will not be enough.

Florida’s prime working-age population (aged 25-54) is forecast to add about 2,500 people per month, so the hole is deeper than it looks.

It would take the creation of about 1 million jobs for the same percentage of the total population to be working as was the case at the peak.

Employment Still Down from Peak Levels, But Improving...

Statewide loss from the peak is -8.9%.Eight counties have surpassed the prior peak;

Population Growth RecoveringPopulation growth is the state’s primary engine of economic growth, fueling both employment and income growth.

Population growth is forecast to continue strengthening, showing increasing rates of growth over the next few years. In the near-term, growth is expected to average 1.2% between 2012 and 2015 – and then continue its recovery in the future, averaging 1.4% between 2015 and 2020. Most of Florida’s population growth through 2030 will be from net migration (85.3%). Nationally, average annual growth will be about 0.9% between 2012 and 2030.

The future will be different than the past; Florida’s long-term growth rate between 1970 and 1995 was over 3%.

Florida is on track to break the 20 million mark during 2016, becoming the third most populous state sometime before then – surpassing New York.

Florida’s April 1 Population Snapshot

Florida’s population:was 15,982,824 in 2000was 18,801,332 in 2010is forecast to grow to 23,683,684 by 2030

Population Growth by Age Group

April 1, 2010 to April 1, 2030

Between 2010 and 2030, Florida’s population is forecast to grow by almost 4.9 million.

Florida’s older population (age 60 and older) will account for most of Florida’s population growth, representing 55.9 percent of the gains.

Florida’s younger population (age 0-17) will account for 14.9 percent of the gains.

Florida Housing is Generally Improving

Building permit activity, an indicator of new construction, is back in positive territory, showing strong (31.6%) year-over-year growth for the first eleven months of the calendar year.

Existing Homes Sales Are Growing...

Data through December 2012

While Existing Home Price Gains Are Modest

Median Sales Prices for Existing Homes have shown improvement, posting the highest number December in 48 months (December 2008), but median sales prices are still substantially below the nation as a whole.

Data through December 2012

Data from RealtyTrac

2012 Calendar Year...Florida had highest Foreclosure Rate in the USfor the first time since the housing crisis began.(3.11% of housing units received at least 1 filing)

November 2012, compared to US:Florida foreclosure starts increased 20% from one year ago.

• 2nd Highest State for # of Filings • Highest State for Foreclosure Rate• Among US Metro Area rates: seven of the top 10

highest metro rates in the nation were in Florida. Palm Bay-Melbourne-Titusville #1Ocala #2Jacksonville #4

Foreclosure Activity Remains Daunting

Data from RealtyTrac

Days to ForecloseForeclosure Process (once begun)• 853 Days – 2.4 yrs – in Florida

(3rd Longest Period in Nation in 2012:Q4)

• At the beginning of 2007, Florida was at169 days or less than 6 months.

National Average – 414 days

High

Low

Foreclosures & Shadow Inventory

LPS Data: December Mortgage Monitor

“Optimists point to declining home inventories in relation to sales, but they are looking at an illusion. Those supposed inventories do not include about 5m housing units with delinquent mortgages or those in foreclosure, which will soon be added to the pile. Nor do they include approximately 3m housing units that stand vacant – foreclosed upon but not yet listed for sale, or vacant homes that owners have pulled off the market because they can’t get a decent price for them.” Financial Times

Sales Mix Points to Lower Prices

Data from LPS: Lender Processing Services

• Financed Sales—and to a lesser extent Cash Sales—have been growing as percentages of all sales, but the percentage for REO & Short Sales has been declining.

• While short sales have been increasing in some states, that is not yet the case in Florida. There were 6,075 short sales in November 2011, and only 4,900 in November 2012.

• To the extent short sales increase, the foreclosure pipeline will be reduced.

50.23% 44.62%

34.00% 34.73%

15.77%20.65%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Nov‐11 Dec‐11 Jan‐12 Feb‐12 Mar‐12 Apr‐12 May‐12 Jun‐12 Jul‐12 Aug‐12 Sep‐12 Oct‐12 Nov‐12

Distribution of Total Sales  (November 2011 through November 2012)

REO & Short Sales as % of Total Sales  Cash Sales as % of Total Sales Financed Sales as % of Total Sales

REO price running 44% lower than

normal price; short sale price running

36% below

Homeownership Rate Back to Normal

The 2011 percentage is the lowest since 2002. So far, calendar year 2012 looks on track to be back to the long-run average homeownership rate.

Long-Run Average = 66.3%

Credit Conditions Remain Tight

July 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices (Federal Reserve Board)

Question to Senior Loan Officers:Over the past three months, how have your bank's credit standards for approving applications from individuals for prime residential mortgage loans to purchase homes changed?

All Respondents

Oct ‘12 % July ‘12 % Apr ’12 % Jan ’12 % Oct ‘11 % July ’11 % Apr ’11 % Jan ‘11 % Oct ‘10 %

Tightened considerably 0.0% 1.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Tightened somewhat 3.1% 1.6 5.6 0.0 4.2 5.7 3.8 3.7 13.0

Remained basically unchanged 92.2 93.4 90.7 94.3 91.7 86.8 92.5 94.4 83.3

Eased somewhat 4.7% 3.3 3.7 5.7 4.2 7.5 2.0 1.9 3.7

Eased considerably 0.0% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Banks reported that they were less likely than in 2006, to varying degrees, to originate mortgages to any borrowers apart from those with the strongest credit profiles. Downpayments of 20% also a strong requirement.

Perceptions Recover After 8/2011 Dive

Nationally, consumer sentiment had been improving, but fell in August 2011 to near the lowest level of the Great Recession and not far from the lowest level ever posted. The index reading dropped in December as concerns about the Fiscal Cliff took hold. (73.8 in January 2013). “Business sentiment has improved inconsistently in recent weeks, with little sign of a surge following the passage of the fiscal cliff tax deal. Expectations about the economy’s prospects into 2013 actually improved toward the end of 2012. Nonetheless, business sentiment remains very fragile and likely to evaporate quickly if policymakers cannot solve the remaining spending and debt ceiling issues gracefully. Business sentiment continues to signal a soft economy.” [Dismal Scientist, January 4, 2013]

August 2011

Economy Slowly Recovering

Florida growth rates are gradually returning to more typical levels. But, drags are more persistent than past events, and it will take a few more years to climb completely out of the hole left by the recession. Overall...

The recovery in the national economy is well underway. While most areas of commercial and consumer credit are strengthening – residential credit still remains sluggish and difficult for consumers to access.

The subsequent turnaround in Florida housing will be led by:Low home prices that begin to attract buyers and clear the inventory.Long-run sustainable demand caused by continued population growth and household formation that has been pent-up.Florida’s unique demographics and the aging of the baby-boom generation (2011 marked the first wave of boomers hitting retirement).

Upside Risk for Construction

The “shadow inventory” of homes that are in foreclosure or carry delinquent or defaulted mortgages may contain a significant number of “ghost” homes that are distressed beyond realistic use, in that they have not been physically maintained or are located in distressed pockets that will not come back in a reasonable timeframe. This means that the supply has become two-tiered – viable homes and seriously distressed homes.

To the extent that the number of viable homes is limited, new construction may come back quicker than expected.

Eurozone Problems Still PersistThe sovereign debt crisis in the Eurozone has led to banking instability with spillover effects on the global credit market. Liquidity threats have diminished, but solvency issues still exist, especially for the Greek banks facing strict recapitalization requirements by April or nationalization.

Austerity measures have proven problematic.

The United Kingdom has called for a referendum on EU membership..

The latest data for the third quarter of 2012 shows that the Eurozone is officially back in a recession. The economies of Greece, Italy, Spain, Portugal, Austria and the Netherlands are contracting sharply. It now looks likely that even Germany will experience a decline in the fourth quarter of 2012.

These conditions are negatively affecting the United States: Tighter credit conditions already exist, especially for businesses with foreign interests.Reduced exports and corporate earnings already exist. The Greater Miami area is experiencing a significant reduction in exports to Spain (Florida exports to Spain fell nearly 30% last year).

“Fiscal Cliff” Issues

The agreement in Washington averted most (but not all) of the threatened 2013 tax hikes; however, the 2% payroll tax cut was allowed to expire.

The current National and Florida Economic Outlooks assumed that the 2% payroll tax cut was extended throughout 2013 and then phased out over several years—so the General Revenue forecast does not capture the effects of its removal.The latest analysis by EDR indicates that the end of the payroll tax cut results in a $7.3 billion negative impact to the economy and up to a $119 million loss in sales tax ($106 to the General Revenue Fund).

Issues with the Sequester and action regarding the Debt Ceiling remain.Automatic Sequester provisions were extended to March 1, 2013—While it is clear that there is no meaningful support for the current sequester provisions, agreement has not been reached on a replacement. Moreover, additional revenue changes are still on the table. According to IHS Global Insight, “The smaller the initial deal and the closer to the brink before it is agreed, the greater the likelihood that the United States will be downgraded by one or more ratings agencies.” The threat of further damage to consumer sentiment still exists, and hope for an agreement has weakened.Statutory debt ceiling fight delayed—the House and Senate have passed and the President has signed HR 325 (“The No Budget, No Pay Act”) to waive the statutory debt limit through May 18, allowing the Treasury to borrow above the current $16.4 trillion limit until then. The bill also would temporarily impound House or Senate paychecks if the respective chamber fails to adopt a congressional budget resolution by April 15.

The uncertainty surrounding the “Fiscal Cliff” hasn’t significantly receded with the passage of H.R. 8, particularly in regard to potential federal spending losses where the largest impact to Florida resides.

General Revenue Forecast

LR Growth: Averages 6%

Fiscal YearAugust

ForecastDecember Forecast

Difference (Dec - Aug)

Incremental Growth Growth

2005-06 27074.8 8.4%2006-07 26404.1 #REF! -670.7 -2.5%2007-08 24112.1 #REF! -2292.0 -8.7%2008-09 21025.6 21025.6 0.0 -3086.5 -12.8%2009-10 21523.1 21523.1 #REF! 497.5 2.4%2010-11 22551.6 22551.6 0.0 1028.5 4.8%2011-12 23618.8 23618.8 0.0 1067.2 4.7%2012-13 24631.6 24867.6 236.0 1248.8 5.3%2013-14 25872.7 26028.4 155.7 1160.8 4.7%2014-15 27141.4 27240.7 99.3 1212.3 4.7%2015-16 28394.0 28383.6 (10.4) 1142.9 4.2%